Every salesperson wants to earn
more. But how much should salespeople
make? Is there a benchmark?
What about a sales team? Is there a certain number of people in a team
that is necessary for it to profitably support a manager?
What about the company as a
whole? If you are constantly besieged by
advertising agencies and marketing firms, all wanting a piece of your budget,
what should you invest? Are there some guidelines?
Other than sales and gross profits,
is there anything else you should be tracking to keep your sales and marketing
costs in line?
The answer to all these questions is
the same: YES.
Before we mention any benchmarks,
let’s make sure we are using accurate measurement. 30 years ago, in order to create a standard
measurement, I developed a measurement we call “Kahle’s Kalculation .” We describe it, with same calculations and
spread sheets, in a free E-book here.
Basically, it is a measure of
productivity, focused on sales and marketing costs. It compares the contribution
of the unit,(salesperson, sales team, company as a while) to the direct costs
of that unit, and calculates the ratio. The result of the calculation is a percentage
which expresses the measurement of how productive the measured unit is. The smaller the number, the more productive. So, if you are measuring a salesperson, a KK
measurement of 25% indicates a more productive salesperson than someone with a
measurement of 35%.
Once you are equipped with that
measurement, you can compare one salesperson to another, and you compare a
salesperson’s recent performance to the same person’s performance last year.
Not only can you measure the
performance of a salesperson, but you can also measure the performance of a
sales team. So, for example, if you have
multiple branches, you can calculate the KK of each branch and compare them.
Finally, you can use the measurement
to make some observations about the productivity of your entire sales and
marketing effort – your sales and marketing system.
Whenever I get involved with a client
company, I recommend creating a base line by calculating the number for last
year. Then, begin to measure each level quarterly
to track improvements.
So, where should those numbers
be? Is there a benchmark?
Yes.
But first, let me share where these numbers came from. I have been in practice for over 30 years,
and have worked with over 500 companies, personally and contractually. It has been my routine to have every client
create these measurements. In addition,
my company has performed about a half dozen projects for national trade
associations, where we measured the members of that association and published specific
industry benchmarks. Overall, I estimate
that I have seen these measurements for a couple of thousand companies of
almost every size and type.
So, attribute whatever degree of
reliability you feel comfortable with. I
am convinced of the reliability of these benchmarks.
For a field salesperson, the ideal
range for a KK number is in the teens – 13 percent to 19 percent. Less than that, and the salesperson is
underpaid. This is often an indication that the salesperson has too much
responsibility and that reducing the size of the territory can increase
penetration and market share. That
number can increase to 25 percent if the company drops ships a large percentage
of its product from some other source. If it manufactures or warehouses the product,
than the teen guideline holds firm.
If your salesperson’s measure is more
than that – say 35 percent, I can say without hesitations that salesperson is
probably not profitable for the company.
For the company as a whole, if you
are under $35 Million in annual sales, your number should be in the range of 26
percent to 34 percent. More than that
indicates that you are not efficient in your sales and marketing efforts. It may be that you are investing now for
hoped for returns down the road. You are probably not profitable, and one of
the core causes is inefficient sales and marketing efforts.
If your number is below that, then
you are probably not growing as you should because you are not investing appropriately
in the sales and marketing function. Or it may be that you are, as the owner,
taking excess profits out of the business, and the sales system is the victim.
There are, of course, lots of induvial variables that impact these numbers. Use them a rough approximation of what you should be spending on sales and marketing and then fine-tune appropriately.
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